by Matt Stekier, principal, and Ryan Muneio, manager, Plante Moran
Good supply chain forecasting – working hand in hand with sales and operations – will help a company right-size stock levels, minimize lead times and optimize order management. Done right, the result will be increased efficiency, better information across the team, reduced costs, faster time to market and improved customer experience.
For many companies in the plastics industry, a combination of the pandemic, ongoing supply chain issues and tightening economic conditions have created serious financial challenges. The environment continues to be unpredictable due to global shortages of raw materials, rising resin and energy costs, staffing and productivity issues, unreliable shipping and environmental concerns. Companies with supply agreements that include efficiency clauses with price-down targets are experiencing additional pressure.
The world is changing rapidly, and many in the plastics industry are recognizing the need to get ahead of it now. One area ripe for change is improving efficiencies with supply chain forecasting.
Supply chain forecasting uses data analytics and research to make predictions on all aspects of the supply chain to keep the business running smoothly. At its essence, it requires stitching together a variety of data points to help understand trends in the business and create actionable insights. There’s no single strategy for supply chain forecasting. Every company is different, and the method chosen will depend on its unique factors. The following four-step analysis will help to prepare a company’s framework for its forecast.
Evaluate the Supply Chain
Study the supply chain from top to bottom. Identify suppliers, intermediaries and the businesses that are being coordinated with to get products to customers. Evaluate the sourcing process, the amounts each supply partner can provide, the price, a supply partner’s capabilities and capacities as well as the business case for each. Collect and process market data to understand how prices and operational costs might change over time. Most critical resin suppliers and distributors to plastics processors are large multinational companies with considerable leverage over their customers. Acknowledging that, and the fact that the type of resin specified by a customer may be manufactured by a small number of companies, there may be limited opportunities in terms of material pricing and contracts. But look for any low-hanging fruit and focus internal resources on the critical items.
Also, consider hedging strategies. Resin is a commodity that can fall victim to fluctuations in global market prices. Hedging can help smooth out the wild swings in prices. If a company lacks the skills to do this in-house, consider outsourcing the process.
Review Sales and Operations Planning
Review the sales and operations planning side of the business to improve the inputs to the forecast. Is the sales team keeping the operations team informed about what the customers are asking for? Is demand shifting? What will the company be focusing on in terms of new business? Is the operations team in tune with the supply team? Is the purchasing department buying the right materials and identifying sources for new products that may be coming around?
Supply chain forecasting works hand in hand with demand forecasting, inventory optimization and sales forecasting. It leverages advanced analytics to help determine when customers are likely to buy certain items. Implement spend analytics to provide a true look at where the money is going, and what it’s being spent on and focus on key items. Predictive analytics alongside a review of historical data can provide the information needed to keep suitable stock levels to fulfill customer orders. With solid supply projections, a company can better estimate total sales, revenue and profit margins.
The location of a company’s suppliers affects how quickly items can move through the chain. Due to the limited number of resin suppliers, sourcing options may be restricted, but where possible, sourcing closer to a company’s operations can have significant benefits. For example, moving sources from Asia or the European Union to North American suppliers can reduce transit time for inbound shipments, minimize the amount of capital tied up in raw materials and reduce the complexity of the supply chain. It also can help alleviate geopolitical concerns as the global implications of regional conflicts are felt in an ever-connected world. In many instances, the cost of relocating to North America can be offset through efficiency gains elsewhere in a company’s operations. The location of warehouses and fulfillment centers also is important. Look for opportunities to relocate or utilize them differently to minimize shipping times and increase the flexibility of the supply chain.
Establish your Objectives and Forecasting Strategy
Once the analysis is complete, it’s time to roll up the sleeves and determine the best method for using resources efficiently, keeping the machines running and reliably meeting customer demand. Take a macro snapshot approach – determine where the company is at with everything from budget and logistics to throughput and administrative functions.
Look for opportunities to optimize the following areas:
- Inventory levels: Excess inventory ties up resources that can be used elsewhere. With accurate forecasting, stock numbers can be kept as close to an ideal range as possible to maximize sales, revenue and profit margins.
- Logistics network (both inbound and outbound): Create visualizations that show where stock is and when and how it’s being transported to identify inefficiencies that are driving up transit time and cost. These insights will help establish better relationships with transportation service providers and prioritize key customers.
- Production scheduling process: Review scheduling processes to optimize runtime, reduce changeovers, develop risk planning and plan optimal secondary options for scheduling changes.
- Labor force: Invest in automation within the production and material handling process and cross-train staff to reduce non-value-added steps such as changeover and excess material handling.
- Administrative functions: Maximize administrative staff’s time by automating processes to increase throughput of supplier requisitions, purchase orders and quotes.
- Strategic spare parts inventory: Develop a purchasing strategy to obtain and store critical spare parts for operations and an inventory management strategy to ensure expensive repair items can be sourced expeditiously when the cost to purchase and store is too high.
Design the forecast for each link in the supply chain, including components, service parts and finished merchandise. Forecasting is an inherently tricky business and will never be 100% accurate. It involves making predictions based on past and present information, using hard data, and, at times, intuition, to varying degrees of accuracy. The forecasting method a company chooses will depend on the nature of its business and economic situation. Whichever method a company adopts, it’s important to review the forecast at regular intervals to ensure the input is of the most recent trend information for the calculations.
Business constantly is changing. New products and competitors appear, industries are disrupted and suppliers come and go. But with accurate information, the sky’s the limit; getting it right can lead to better supplier relationships, increased customer satisfaction and more capital to grow and scale business.
Matt Stekier, principal, management consulting, has more than 20 years of experience serving clients and leading process improvement initiatives. Utilizing his background as a Six Sigma Green Belt and certification in Theory of Constraints, as well as other Lean methodologies, he has demonstrated the ability to quickly identify improvement opportunities that translate into tangible results that increase productivity, lowering total cost, reducing lead times and improve overall quality. Stekier has utilized his knowledge to successfully lead multiple Lean initiatives and process improvement projects on the manufacturing assembly floor, warehouse and distribution activities, in a machine shop environment, and in the administrative setting for back office functions.
Ryan Muneio, manager, management consulting, has more than 10 years of experience specializing in advisory services for middle-market manufacturing and distribution organizations, including family-owned and private equity-owned companies. Many of his commercial clients are active in the plastics and food and beverage space. Muneio believes in developing strong client relationships and developing custom solutions to meet clients’ needs. He also helps the analytics practice with lead generation and business development. From 2019-2021, Muneio served on the external accounting advisory board for Michigan State University Eli Broad College of Business, where he received his B.A. and M.S in accounting. He is a member of the AICPA and the Michigan Association of CPAs.
More information: [email protected], [email protected] or www.plantemoran.com.